a.k.a. Brands (AKA) - 2024 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's discussion for the quarter ended March 31, 2024 Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Q1 2024, reporting a net loss of $8.9 million Condensed Consolidated Balance Sheet Highlights (unaudited) | Account | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :--- | :--- | :--- | | Total Current Assets | $133,611 | $135,695 | | Total Assets | $355,754 | $361,721 | | Total Current Liabilities | $82,489 | $85,961 | | Total Liabilities | $220,244 | $213,103 | | Total Stockholders' Equity | $135,510 | $148,618 | Condensed Consolidated Statements of Income (unaudited) | Metric | Three Months Ended Mar 31, 2024 (in thousands) | Three Months Ended Mar 31, 2023 (in thousands) | | :--- | :--- | :--- | | Net sales | $116,840 | $120,485 | | Gross profit | $65,674 | $68,500 | | Loss from operations | $(6,093) | $(6,551) | | Net loss | $(8,933) | $(9,553) | | Net loss per share (Basic & Diluted) | $(0.85) | $(0.89) | Condensed Consolidated Statements of Cash Flows Highlights (unaudited) | Activity | Three Months Ended Mar 31, 2024 (in thousands) | Three Months Ended Mar 31, 2023 (in thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | $(7,687) | $(2,960) | | Net cash used in investing activities | $(755) | $(1,880) | | Net cash provided by (used in) financing activities | $8,899 | $(11,443) | | Net decrease in cash | $(133) | $(16,129) | Notes to Condensed Consolidated Financial Statements These notes detail accounting policies, financial components, and disclosures, including revenue disaggregation and debt structure - The company has aggregated its four brands (Princess Polly, Petal & Pup, Culture Kings, mnml) into a single reportable segment due to similarities in products, processes, customers, and economic characteristics[38] Net Sales by Geography (in thousands) | Geography | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | | :--- | :--- | :--- | | U.S. | $77,138 | $72,626 | | Australia/New Zealand | $33,516 | $41,446 | | Rest of world | $6,186 | $6,413 | | Total | $116,840 | $120,485 | - As of March 31, 2024, the company had $103.6 million in total debt, consisting of a $94.0 million term loan and $10.5 million drawn on its revolving credit facility. The company was in compliance with all debt covenants[49][51] - On September 29, 2023, the company effected a one-for-12 reverse stock split of its common stock. All share and per-share amounts for prior periods have been retrospectively adjusted[74] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2024 performance, noting a 3% net sales decrease to $116.8 million and a net loss of $8.9 million Key Operating Metrics | Metric | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | | :--- | :--- | :--- | | Active customers (millions) | 3.83 | 3.63 | | Average order value ($) | $77 | $80 | | Number of orders (millions) | 1.52 | 1.50 | Key Financial Metrics (GAAP and Non-GAAP) | Metric | Three Months Ended Mar 31, 2024 (in thousands) | Three Months Ended Mar 31, 2023 (in thousands) | | :--- | :--- | :--- | | Gross margin | 56% | 57% | | Net loss | $(8,933) | $(9,553) | | Adjusted EBITDA | $874 | $2,186 | | Adjusted EBITDA margin | 1% | 2% | - Net sales decreased by 3% (1% on a constant currency basis) primarily due to a 4% decrease in average order value, which was impacted by adverse macroeconomic conditions in Australia and New Zealand[106] - General and administrative expenses decreased by $3.2 million (12%), driven by lower sales tax penalties, professional fees, and intangible amortization[110] Liquidity and Capital Resources The company's liquidity relies on $21.9 million cash and a senior secured credit facility, deemed sufficient for the next 12 months - Principal sources of liquidity as of March 31, 2024, were cash and cash equivalents of $21.9 million, a revolving line of credit, and a term loan accordion provision[113] - Net cash used in operating activities increased to $7.7 million in Q1 2024 from $3.0 million in Q1 2023, primarily due to increased inventory purchases compared to the prior period[119][121] - Net cash provided by financing activities was $8.9 million in Q1 2024, a significant shift from the $11.4 million used in Q1 2023. This was mainly due to $10.1 million in net proceeds from the credit facility in 2024 versus net repayments in 2023[119][125] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exempt from market risk disclosures as a smaller reporting company under SEC regulations - As a "smaller reporting company," the company is exempt from providing quantitative and qualitative disclosures about market risk[129] Item 4. Controls and Procedures Management concluded disclosure controls were ineffective due to two unremediated material weaknesses in internal control over financial reporting - Management concluded that disclosure controls and procedures were not effective at the reasonable assurance level as of March 31, 2024, due to two unremediated material weaknesses[130] - The two material weaknesses are: (1) insufficient design, implementation, and documentation of internal controls at the entity level and across key processes, and (2) lack of appropriate segregation of duties in manual and IT-based processes[132] - Remediation efforts are ongoing, including hiring experienced personnel, engaging a third-party consulting firm, and implementing a new Enterprise Resource Planning (ERP) system to improve controls and enforce segregation of duties[132][133][134] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, other information, and exhibits for the reporting period Item 1. Legal Proceedings The company is subject to ordinary legal proceedings, with no material adverse impact expected, but a new copyright claim is noted - The company states that existing legal proceedings are not expected to have a material adverse impact on its financial position or results of operations[137] - In April 2024, the company received a cease and desist letter for alleged copyright infringement. While a loss is reasonably possible, the amount is not currently estimable[83] Item 1A. Risk Factors No material changes to previously disclosed risk factors were reported in this period - The company reports no material changes to the risk factors disclosed in its 2023 Form 10-K[138] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities This section details the company's share repurchase activity, with 113,959 shares repurchased in Q1 2024 Share Repurchase Activity (Q1 2024) | Period | Total Shares Purchased | Average Price Paid per Share ($) | | :--- | :--- | :--- | | Jan 2024 | 49,081 | $9.40 | | Feb 2024 | 37,501 | $10.24 | | Mar 2024 | 27,377 | $10.98 | | Total | 113,959 | - | - As of March 31, 2024, approximately $1.8 million remained available for future repurchases under the company's Share Repurchase Program[140] Item 5. Other Information No directors or executive officers adopted or terminated Rule 10b5-1 trading plans during Q1 2024 - During the three months ended March 31, 2024, no directors or executive officers adopted or terminated a Rule 10b5-1 trading plan[143] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including required certifications and XBRL data files